Employment Income Manual

Particular benefits: bicycles: simplified approach to valuing cycles sold to employees after end of loan period

As explained in EIM21664, employers commonly choose to provide the benefit of a loaned cycle in conjunction with salary sacrifice arrangements. It’s common for cycles provided under salary sacrifice arrangements to be sold or transferred to employees after the end of a period of loan. The exemption for certain loaned cycles will be prevented from applying if any agreement builds in from the outset an automatic transfer of ownership to the employee at the end of a loan or hire period (see EIM21667). However, where this is not the case, there is no contradiction in an earlier exempt loan being followed by a decision by the employee to buy the cycle.

If a cycle is transferred to an employee after a period of use as a benefit during which the exemption described in EIM21664 applied, the transfer may be taxable either as earnings within section 62 ITEPA 2003 or as a benefit (see EIM21667).

In either case, as long as any payment that the employee makes for the cycle is equal to or more than the market value, there will be no tax charge under the employment income rules. If the employee pays less than market value, the difference will be taxable as employment income.

Establishing market value of second-hand cycles can be difficult, particularly as the amount that an employee can realise for a cycle in the course of a private sale may be rather higher than a cycle retailer would be willing to pay. To ease the administration of valuing cycles sold to employees, employers and employees may choose to use the following simplified approach.

Terms on which simplified valuation approach can be used

Where the employer adopts the simplified valuation approach either:

by ensuring that employees pay at least as much for the cycle as the amount calculated using the following table or

by using the table values to calculate the amount of any reportable earnings or benefit,

HMRC will accept that the valuations are correct for the purpose of ascertaining the employment income position.

This approach only applies to cycles which have qualified for the exemption in section 244 ITEPA 2003 throughout the period since they were first provided. As a result, because of the qualifying conditions for exemption, the main use of the cycles must have been for travel between home and a workplace or between one workplace and another.

Cycles which have previously qualified for exemption in this way will commonly - but not solely - be provided under salary sacrifice arrangements. However, the simplified valuation approach is not restricted to salary sacrifice arrangements and can be used for other cycles which have qualified for the exemption.

This approach cannot be used for cycles with special value even if, exceptionally, such cycles have qualified for the exemption in section 244. Cycles with special value are those whose value is higher than for other second hand cycles because of special and unusual features or provenance. The following are considered to be cycles with special or unusual features; antique or collectable cycles, specialist cycles that have been individually hand built to order, cycles with an enhanced value because they have previously been ridden by a famous person or by the winner of a high profile race; but this list is not exhaustive there will be others

The simplified valuation approach can however be used for widely available cycles, without any special or unusual features, whatever their original cost even if they are of a make or model that holds its value better than some others.

If employers chose to use lower values, it would remain open to HMRC to challenge these and the employer or employee (as appropriate) would need to be able to provide evidence in support of these values i.e. to demonstrate that the employee could have realised no more than these sums from sale or disposal of the cycle. We would expect evidence of a lower value to include:

a photograph of the cycle demonstrating its condition along with a description of any important aspects of its condition that are not evident from photographic evidence,

broad details of the extent of usage of the cycle (which can vary considerably even between cycles that meet the “qualifying journeys” main use condition for exemption), and

contemporaneous evidence of the amount for which that type of cycle in that sort of condition would have realised in a private sale and in a sale to a cycle retailer.

Valuation table

Age of cycle

Acceptable disposal value percentage

Original price of the cycle less than £500

Original price £500+

1 year

18%

25%

18 months

16%

21%

2 years

13%

17%

3 years

8%

12%

4 years

3%

7%

5 years

Negligible

2%

6 years and over

Negligible

Negligible

How to use the valuation table

The original price of the cycle is the price for which it was on sale as new at the time when it was first provided to the employee. In salary sacrifice arrangements this price may be clearly referred to in the documentation. Cycles are normally acquired by employers at arm’s length from unconnected persons and where this is the case, either of the following can be accepted as the original price of the cycle:

the amount that the employer paid or was invoiced for the cycle or

the retail price of the cycle that was taken into account in working out any hire payments.

It’s acceptable to use the VAT exclusive amount in calculating the original price of the cycle. However, where the valuation percentage is applied to a VAT exclusive amount, VAT will need to be added to the result in order to arrive at the acceptable market value. This must be done regardless of whether or not the employer is VAT-registered. For example, if the original price net of VAT was £400, then whilst the VAT rate is 17.5%, the acceptable market value at 2 years old will be £61. ((£400 × 13%) + (VAT at 17.5% × £52) = £52 + £9 = £61).

Note: This guidance is solely about a simplified method of calculating the value of used cycles in the context of taxable employment income and is not intended to have any bearing on the actual VAT position. Employers will need to refer to the appropriate guidance or seek advice on how to account for VAT on sales of used cycles.

Where a cycle is transferred to an employee at a point between the ages shown in the table, the percentage shown in the table should be adapted on a sliding scale down to the next year. However, given that the movement from one month to another will always result in changes of less than one percentage point and given that the values to which these percentages are applied are not large, a commonsense view should be adopted in terms of the degree of precision used in applying the sliding scale. For example, for a cycle just a few weeks short of 3 years old, the 3 year old percentage would be acceptable.

In calculating the original price of the cycle, include safety equipment fitted to the cycle (such as lights and bells) but not safety equipment which would be worn by the cyclist (such as helmets or reflective clothing). Where used regularly for commuting and/or travel between workplaces, safety equipment worn by the cyclist is likely to have a market value that is lower than the table percentages for a cycle and cycle-based safety equipment.

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